At this time, I would like to welcome everyone to the Wachovia third quarter2007 earnings call (Operator Instructions) I would now like to turn theconference over to Ms. Alice Lehman, Director of Wachovia Investor Relations.Please go ahead, Ma’am.

This is Ken Thompson. The line got very staticky when you started talkingand I’m wondering if you can check to see if people can hear me. Operator?

Yes, sir. You’re good and clear.

Okay. Good.

Thanks for joining our call this morning. This is Alice Lehman from investorrelations. We hope you’ve received our earnings release by now, as well as thesupplemental quarterly earnings report. If you haven’t, both are available onour investor relations website at Wachovia.com/investor. In this call, we’ll review the first 16 pages of the quarterly earningsreport. In addition to this teleconference, this call is available through alisten-only live audio webcast. Replay of the teleconference will be availableby about 2:30 today and willcontinue through 5:00 on Friday,January 11th. The replay phone number is area code 706-645-9291 andthe access code is 12547240. Our CEO, Ken Thompson, will kick things off. He’ll be followed by our CFO,Tom Wurtz, and our Chief Risk Officer, Don Truslow. We’ll be happy to take yourquestions at the end. Of course, before we begin I have a few reminders. First, any forward-lookingstatements made during this call are subject to risks and uncertainties.Factors that could cause Wachovia’s results to differ materially from anyforward-looking statements are set forth in Wachovia’s public reports filedwith the SEC including Wachovia’s current report on Form 8-K filed today. Second, some of the discussion about our company’s performance today willinclude reference to non-GAAP financial measures. Information that reconcilesthose measures to GAAP measures can be found in our filings with the SEC and inthe news release and supplemental material located at Wachovia.com/investor. Finally, when you ask questions please give your name and your firm’s name.Now, let me turn things over to Ken.

Good morning, everybody and I apologize for the problems we’ve had with thetelephone line. I hope it’s working okay now. I want to thank you all forjoining us on the call. Undoubtedly you’ve already reviewed our earningsdocument and you know that in the third quarter we earned $1.7 billion or $0.89per common share, which is down 10% from the same quarter last year. It’s clearly been a challenging environment and the disruption in the globalfixed income markets has dominated much of our focus in the quarter.Unfortunately, the markets most affected by the disruption are those where wehave some of our most developed businesses in our corporate and investmentbanks. Specifically, those would be leveraged finance, structured products, andcommercial real estate securitization. Mark-to-market loses in those threebusinesses constituted approximately 90% of our net valuation losses of $1.3billion in the quarter. As you all know, we’ve built very successful leverage finance and structuredproducts businesses that have produced strong results for us over the lastseveral years. In fact, in those two businesses they’ve produced over $4billion in revenue in 2005 and 2006. While 2007’s results will be materiallylower than that, I’ve got confidence that we’ll continue to grow thesebusinesses over the long term. The leaders of these businesses have made verygood strategic decisions while we were building the businesses and theycontinue to have my full confidence. We’ve built the number one ranked domestic CMDS business and leadingstructured products and leveraged finance businesses, and we have very strongtalent in place. We’ve got plenty of capital and we’ve got great liquidity togo forward in those businesses. The shorter term outlook is less clear for the commercial real estatesecuritization business. The situation there is we have significant warehousepositions remaining in many of our competitors’ balance sheets. Deal flow hasslowed and investors are skittish in the face of…

Thank you, Ken. Good morning to everyone on the call. Thanks for joining us.I’ll now turn to the quarterly earnings report document. So if I could ask youto turn to page 2, you can see the performance of our four business unitscompared to last quarter’s results and compared to last year. Overall, we hadpretty solid results in core operations for three of the four segments. Thereare one-time issues which negatively impact the quarter results for wealthmanagement and CMG that tend to mask the underlying performance of thosebusinesses. You can see the general bank is up 3% on a linked quarter basis, or 12%annualized. It’s both a good revenue story and a good expense story, which I’llshare with you as we go forward. Next you see wealth management, down 12%, but here essentially all thedecline is associated with the write-off a receivable in the insurancebusiness. The core activities were relatively flat linked quarter and there wasgood sales activity. The corporate investment bank is down 86% and we’ll spend a fair amount oftime detailing the components of the writedowns that contributed to thoseresults, and also highlight some of the businesses exhibiting strength in thequarter. Capital management, down 5% on a linked quarter. That is the result of $40million in marks taken out of commercial paper assets purchased out ofEvergreen Money Market Funds Ken referred to, and that was really during theheight of the market’s illiquidity disruption. Absent this, results were upfrom a record second quarter and essentially up 29% year over year, so greatmomentum there. Overall, revenues declined 16% from the second quarter, primarily as aresult of marks. A clear positive is the 2% increase in net interest income. Ithink we’re in an environment now where NI growth will again be a driver ofrevenue growth, which is a nice change from the…

Thanks, Tom. Looking at page 14 here, while we’ve been expecting an upturnin credit costs for some time, as Ken and Tom have alluded to, the accelerateddecline in the housing market particularly as evidenced by trends over the lastmonth or so, caused credit costs toward the end of the quarter to rise somewhatfaster than we had projected. I’ll first give a high-level recap of the quarter. Some of the informationTom’s already touched on. Then probably appropriate to dive a little deeperinto a couple of key areas. Non-performing assets rose $881 million to 63 basis points during thequarter. The largest component of that was a $587 million increase in consumerreal estate loans and a $127 million increase in consumer foreclosed realestate. Commercial real estate non-performing loans were up $128 million,ending the quarter at $289 million, with most of that increase representingsoftness in the residential home-building sector. Commercial and other consumernon-perform increases were pretty modest during the quarter. Turning to charge-offs, losses rose to $206 million from $150 million in thesecond quarter. We ended the quarter with a 19 basis point charge-off ratio.Commercial charge-offs were up $7 million, primarily reflecting lowerrecoveries of $5 million and represented just 8 basis points. Consumer charge-offs rose $49 million and were mostly driven by seasonallyhigher auto loan losses. Consumer real estate secured loan charge-offs were upa modest $18 million in the quarter and totaled just 8 basis points. Tom touched on provision expense totaled $408 million. That resulted in anincrease to the allowance for credit losses of a little over $200 millionbefore the transfer out of $63 million for the movement of loans transferred toheld for sale, most of that being attributed to the credit card portfolio beingmoved to held for sale. The increase in the overall allowance was really driven by two things: (1) increasedloan…

Thank you, Don. If I could ask people to turn to page 15, 15 is our full yearguidance in the same form that we use every other quarter and I would say thiswas put in just as a convenience to folks if your models are driven in this manner.But I think if you want to be able to understand what our view is of the fourthquarter it would be much more convenient to turn to page 16. There, we simplyprovide a reference for what third quarter actual results are and then ouroutlook for the fourth quarter in reference to the third quarter results. I would make the note, this does not reflect the impact of AG Edwards, whichclosed on October 1st, which I’ll address separately. So net interest income, $4.6 billion and we expect 1% to 3% growth relativeto that value. Income, $2.8 billion, obviously at a depressed level. We expect30% to 34% growth in the fourth quarter. Non-interest expense, $4.4 billion.Expect that growth to be in the 5% to 7% growth range. Minority interest expense,$189 million, expected to be down 20% to 30% from that level. Loans, we expect overall loans to be mid single-digit growth range. Andcharge-offs, as Don mentioned, 25 to 30 basis point range. The provision, asKen mentioned and Don mentioned, would expect to be higher. This quarterprovisions exceeded charge-offs by $200 million and it isn’t at all that unreasonablethat you can have something similar or even greater next quarter. We’ll justhave to see what the trends suggest. If the trends had indicated that wouldhave been appropriate this quarter we would have done that. They didn’t and sowe’ll move forward to next quarter. We should achieve our target capital ratiosin the quarter. Finally, with respect to AG Edwards, on the bottom of the page we’ve shownwhat their last quarter results were for revenue and expense and net income,for folks that want to incorporate that into their model, and by ourcalculations we don’t believe that in the fourth quarter it has any materialimpact whatsoever. It should be about breakeven with our results. So if you getresults different than that then I would suggest you try again. With that, I’ll turn it back to Ken.

Well that completes our formal presentation, operator, and now we would liketo open the floor for questions.

(Operator Instructions) Your first question will come from the line of BobPatton with Morgan Keegan.

Morning, guys.

Morning, Bob.

Can you give a little color as to what the impact is with and without GoldenWest? I mean, obviously California markets, we know what’s going on and you’vegiven some colour, Don, but can you sort of give a little more colour what’sgoing on in terms of the trends in some of the Golden West markets and theportfolio?

Bob, given that the kind of hot spots driving the increase in non-performare the certain California markets and the fact that Golden West was moreheavily concentrated at the time of the deal, most of the increase innon-performs does come out of the legacy Golden West portfolio. But it really relates back to what is happening underlying in those marketsas opposed to anything about the product or the underwriting at inception. As amatter of fact, I think the fact that the way those loans were underwritten andhow collateral was appraised, et cetera, I think we are probably faring in muchbetter shape than other lenders in this market.

What I can tell you, Bob, is from a top of the house perspective in terms ofnet income contribution of Golden West, net income is materially higher in 2007than it was in 2006. I would have a fair amount of optimism or a great amountof optimism that you will see or we will see growth in 2008 as well. We’reseeing balanced growth, margins are wider, and to this point actual creditlosses have been extraordinarily low and we’ve achieved all the expense cutsplus probably a little bit more as we integrated our mortgage businesses. I’dbe honest with you, it didn’t hit the numbers we thought back in 2006 or 2007,but it’s clearly growing and will continue to grow at a nice healthy pace.

Don, in terms of where we are in this housing cycle, obviously it’s accelerating.Obviously we all got caught a little surprised with the rate of deteriorationand provisions across the group. Where do you think we are in terms ofpercentage? Are we halfway there? A quarter of the way there? Is this through’09? What’s your thoughts?

Gosh, Bob, it’s just hard to tell. I don’t know whether we’re a third of theway or half way through, but it’s very evident that the withdrawal of capitalthat existed for a segment of homebuyers out there, call it sub-prime or lowerquality credits disappeared and that’s forcing a lot of inventory back on themarket and it’s having widespread effects across the market. I don’t think anyof us really connected those dots to understand that broad ripple effect. Of course, there are a lot of resets that have been in the press beingtalked about coming up as we head into 2008 and what impact that has in furtherinventory coming back on the market. I think we’re just going to have to watch. On the positive side -- and this is kind of good and bad -- but the housingstart numbers the other day were low and as you would hope, so maybe that’s asignal that new inventory from construction is slowing down and hopefully willhelp us work through the inventory overhang out there maybe a little morequickly. Personally I think we’re looking at a very soft housing environmentwell into 2008, if not all the way through 2008.

I would just say, Bob, a couple of the areas where again that would be positivewould be the reset issue that Don described isn’t an issue for us. Our productsdon’t have that feature. Second, just amplifying what Don said about the secondportfolio, it’s performing extraordinarily well with only about $40 million inNPAs. So we’re insulated from that standpoint and that’s certainly a source ofcomfort.

Your next question will come from the line of Gerard Cassidy with RBCCapital Markets.

A question about the net charge-off ratio that Don touched on regarding afull cycle of being about 30 basis points. Would you expect to exceed that inthe down part of the cycle since you had great numbers in the last couple ofyears in the teens? So to get to that average do we need to exceed that 30basis points at some point in the future?

I mean, that would be an average through a cycle and so we’ve kind of beentracking an interesting trend going back to the third quarter of 2001, the lastcycle, and pulling through our average charge-off ratios including losses onloans that we’ve sold into market or took advantage of the cash markets. If you average through those years up until maybe last quarter or thequarter before, wherever you want to pick, maybe the beginning of theinflection point, we’re in the low 30’s. Again, it’s subjective because marketschange, every cycle is different. It’s really just an educated estimate. But when I talk about 30 basis points give or take it really is through acycle. So at some point in the downturn you’re in worse position and obviouslyat other points you’re in a better position.

The other question, can you guys give us some further color on the commentyou made about the $40 million valuation loss related to the certain asset-backedcommercial paper investments at Evergreen?

Sure, I’d be happy to, Gerard. Really, when the market was at its ultimatedisruption everyone was concerned by commercial papers that was supported byassets and asset-backed commercial paper vehicles. We looked through theportfolio and we saw about $1 billion of commercial paper that was backed bywhat we considered to be pretty high quality underlying collateral and we feltthat it would reassure customers of the Evergreen Funds to buy them out. Essentially all the underlying positions were AAA collateral. So we boughtthem out and as we sit here today probably about half of it has been resolvedor paid back and there’s some more coming down the line where the ultimate losswill be zero. So we’ll probably take a hit in the neighborhood of $4 million,$5 million, $6 million perhaps if we were to sell the assets and if we were tohold onto them, perhaps nothing. But we just thought it was the right thing todo and I think our customers saw that as a real sign of strength. As Imentioned, we saw great inflows during the quarter.

Finally, somebody mentioned about you guys have seen some softness inunemployment or unemployment rates rising in some of your markets. Can you tellus or identify which markets you’re seeing that happen?

I was mentioning that, and if you go out to pull the data from moodyseconomy.comand just track some of the markets in Californiaand the central valley and, again, some of the places you have been reading aboutwhere there’ve been housing declines, you also see a slight corresponding uptickin unemployment. So that’s where we pulled that data.

Your next question will come from the line of Gary Townsend with FBR CapitalMarkets.

Ken, could you talk about risk management experience in the past quarter inyour capital markets operations, please? Were you satisfied? What might you dobetter? What types of assessments are being made?

I would say to you that starting in that second or third week in July whenthe markets seized up we have been very hands on and very active in meetingwith CIB leaders, with risk, with finance, and me on a regular basis. As Ithink Tom said, we think our disclosure to you on our marks is extremelytransparent. That $1.3 billion in marks is essentially all of the marks we tookand we think that a lot of other companies as they have presented their markshave only shown you certain areas. So we think that the $1.3 billion that youmight compare us with others is maybe overstated a little bit. But if you look back at the marks that we took, 90% of those marks are in whatwe consider to be very core businesses for us. That would be leverage finance,commercial real estate finance, and structured products. Those are businessesthat fit our business model well. We’ve got traditional strength in those fixedincome markets and those are businesses that we want to be in. I would say to you that I’m comfortable that our capital markets leadersunderstand our business model, that they sized our risk limits and stress teststo the desired earnings and historical financial performance goals. I think our business unit at all timesoperated within approved limits. We didn’t see any situations where we gotoutside of limits or outside of our model. I think without question we’re going to use the experience that we’ve just beenthrough to refine our models. We’re certainly going to worsen some of thestress testing conditions that we look at going forward and we’ll change theway we do some things. I would say that as we look at results I think the biggest disappointmentfor me is that of those $1.3 billion in marks we had about $300 million,roughly $300 million in losses on AAA sub-prime paper that was in trading deskor in inventory. The thing that disappoints me about that is we have aninstitutional bias here against sub-prime. We avoided it in our originationefforts and we avoided it for the most part in our securitization efforts. So frankly, I think we had a little bit of a breakdown in having AAAsub-prime in some of our portfolios that we took losses on. I do think that itis really quite amazing that we can take $300 million of losses on AAA paper. Imean, we didn’t expect that that paper could degenerate that fast with thatkind of swiftness. So overall I would say to you that I think we did a good job in our riskmanagement here. We have always been in this business knowing that losses couldtake place. Some of it is liquidity and may come back. But we’ve always had a minimumtarget that said we could lose one quarter’s worth of earnings in our marketsbusiness and that’s essentially what happened here and I think we’re poised togrow those businesses going forward. Does that get at your question?

Quite thoroughly. Thank you. Don, could you talk about auto credit andtrends there? This has obviously poked its head up now too.

For the quarter the uptick is primarily seasonally driven. If you go backand look at our portfolio, the track by quarter of charge-off rates, typicallythe first and the second quarter, particularly the second quarter, is a lowpoint. But as the manufacturers begin to change over their model years there isan impact as we go to market with repossessions in the third quarter and thefourth quarter given that there are new car models coming on the market. Soseverities tend to rise. The charge-ff rates in the auto portfolio have been pretty much tracking to theseasonal pattern we’ve seen in the past. So while charge-offs are up, the otherthing that maybe is not as transparent that you’ve got to keep in mind is thatit’s a very profitable business and the margins that we’re getting on the paperwe feel like we’re being very well compensated for the risk. Actually, on the Westportportfolio we are tracking well below the charge-off forecast that weanticipated at the time of the deal. So we’re very pleased about that.

So the weaker trend in auto you’d describe as more seasonal?

That was primarily what we saw in our portfolio. I guess a key questiongoing forward for all of us looking at 2008 is if the housing disruption beginsto impact the consumer in a bigger way, does that then ripple back into theauto market in some form or fashion more than we’re seeing?

As we talk to companies, September, and I think you mentioned this too, wasa particularly weak month for credit. Is that trend, as you see it in October,about the same? Would you say it’s slowed or accelerated?

Still kind of early in the month, but I would say that the trends we sawlate August and September, half way through this month are about the same. Iwouldn’t say that they’ve accelerated, but they haven’t backed off either.

Your next question will come from the line of Matthew O’Connor, UBS. Matthew O’Connor: Can you tell us how much reserves were set aside for your first lienresidential mortgages?

I don’t have the number right off the top of my head specifically, but I willtell you that the ticker tape portfolio was the largest component of the firstlien portfolio and we have multiples of what the losses have been and theexpected losses built into our model have been somewhere around 9 basis points.We are looking at that now. Of course, charge-offs on that portfolio have beenless and the overall reserve for the portfolio has been somewhere around 20, 22basis points. But we will be taking a look at that in the fourth quarter aswell as we freshen up the expected loss evident to 2008. Matthew O’Connor: Assuming that goes higher, like under a stress scenario, if you get back tothat 18 basis points that you had last time, what would that do to reserves? Isit kind of a one-to-one, two-to-one? Can you give us a sense of the ratiothere?

Hard to know, just because of the couple of components that really drive thereserve. There`s an expected loss component that certainly would go up. There`sa variability component that may not change as much. So I don`t know that youcould ascribe a one-to-one move in the reserve to charge-off trends. As ageneral comment, the likelihood is we would be providing more than we are todayas we saw a credit worsen. Most likely a further charge-off amount.

I think it`s worth noting there that as provisions rise, what we`re alsoseeing is outstandings growing and we`ve got better margins in that businessnow. So to a certain extent we are seeing net interest income growth really wethink is going to do a very good job of paying us for the credit losses that wewill take as provisions go up. Matthew O’Connor: That`s definitely a fair point. As we think about fourth quarter reservebuild, is it likely to be more than we had this quarter? On a reserve to loanbasis, for example, because of the good loan growth the ratio actually wentdown a little. If you`re going to revise up to the loss estimate should weexpect a pretty meaningful build in reserves in 4Q?

Matt, it’s just too early to say. The reserve process basically consists ofus looking at the portfolios that will come in at the end of the quarter and,as I mentioned, both look at loan volumes as well as credit quality, with someadjustment for trends that we may sense that aren’t captured in our normalother factors. So that’s, for instance, why we felt it appropriate to build ourunassigned reserve somewhat this quarter and we’ll just have to watch that aswe move into the quarter. I don’t know that I could give you a very clear senseof what might happen in the fourth quarter.

Ladies and gentlemen, we have reached the end of our allotted time forquestions and answers, and your final question will come from the line of KeithHorowitz with Citigroup.

In your 10-Q you disclosed that you had roughly I think $7 billion SIV goingthrough your QER.It looks like you moved, you consolidated that $1.8 billion.First of all, is that correct? And if so, what happened to the remainder of theSIV? For example, were you able to sell some of those assets?

I’m going to answer your question and then also have one other note to make.I was looking through my notes as to things I wanted to mention on our marksand I noted that our marks were net of hedges, but it’s probably worthwhilenoting also that given that we’re not in fair value accounting there is nomark-to-market on our own debt softening those marks in that business. In terms of the SIV exposure, we had a $7 billion exposure and basically $3billion of that amount appears as foreign loans and that is in Wachovia BankInternational. About $2 billion is in loans held for sale. Less than $2 billionis in trading. It was a little less than $1 billion that was really a cashposition in that account, so that came as cash. That’s kind of a reconciliationof where we were and where we are.

It all collapsed back on balance sheet.

Correct.

You get that Keith? It’s all on balance sheet.

Yeah, no, I got that. That’s the perfect answer. Thank you.

Are there any closing remarks?

I would just say thank you for your interest in Wachovia today. I hope thatwe’ve done a good job of answering the questions that you’ve got. Obviously, asalways, Alice Lehman and her team will be available to take further questions. Just in closing, it’s obviously been a tough environment. We’re not excitedto report down earnings, but we are pretty optimistic about our model and aboutour ability to go forward and to do well at Wachovia. So thanks for being withus.

Ladies and gentlemen, this does conclude today’s teleconference. You may alldisconnect.